Bad news: wages up, unemployment low

There were two noteworthy nuggets of information in Straits Times’ front page story about employment numbers in 2015 (Friday, 29 January 2016). This essay will discuss the nugget from this statement: “Just 100 more citizens and permanent residents were in jobs at the end of last year compared with the year before, although unemployment remained low, said the Ministry of Manpower (MOM) yesterday.” My main aim in this essay is to examine the unquestioned assumptions that too often skew our appreciation of the facts.

The Online Citizen was very quick off the mark. In its article ‘99.7% of jobs created in 2015 went to foreigners’, it highlighted the statement by the Ministry of Manpower itself that “Local employment increased marginally by an estimated 100 (or 0.0%) in 2015… ”

Taking a nativist track, The Online Citizen is suggesting that it is a regrettable that only 100 jobs went to Singapore residents, out of the 31,800 increase in employment last year over the year before. However, it can only be regrettable if one makes the tacit assumption that there are plenty more residents available in 2015 compared to 2014. What if the actual number of residents fell? Then, to have a hundred more of them employed is a good thing, no?

In this era of declining populations, we must be careful not to assume that populations always increase. In China, for example,

The working-age population — those aged 16 to 59 — fell 3.71 million last year, the National Bureau of Statistics said today, steeper than the decline of 2.44 million in 2013. The first drop was in 2012 when the group — then also including 15-year-olds — decreased by 3.45 million.

More complicated than it looks

So I took a look at our population statistics. The short answer is that our resident population (i.e. citizens and permanent residents) did not decline 2015 from 2014. There was an increase of about 38,000 in residents aged 15 and above — the age range that MOM defines as ‘working age population’. So perhaps there is reason for The Online Citizen to hammer home the point that virtually all the increase in employment benefitted foreigners.

Yet, we must be careful of another tacit assumption: that there were capable and willing Singaporeans to do these jobs. MOM’s numbers indicate that of 31,800 additional employment in 2015, about 12,000 were in domestic work. Of the remaining 22,000 or so,

The growth in foreign employment was driven by the Services sector, at both the Work Permit Holders (WPH) and Employment Pass (EP) level. The Information and Communications sector accounted for the bulk of EP holder growth, while the Construction, Transport & Storage, Food & Beverage Services as well as Administrative and Support Services sectors contributed to the bulk of the growth in Work Permit Holders.

This indicates that the additional jobs were in sectors at the upper and lower ends of skill/salary range. Immediately we should wonder about the fit between these jobs and Singaporeans’ skills or willingness.

Below this main article, I have a sort of appendix (titled ‘The technical stuff’) discussing what else I noticed when I trawled through the numbers. You don’t have to read it unless you’re a masochist with numbers.

Job loss occurred during second half 2015

One thing that struck me when I looked at the actual numbers was that in the middle of 2015 (i.e. June) there were about 44,000 more residents in employment compared to June 2014. Yet, by the end of 2015, MOM said there were only one hundred more compared to a year earlier. It appears that in the second half of 2015, there has been a bleed.

MOM had a specific mention in its statement that redundancies came to 4,200 in the fourth quarter of 2015.

This should be no surprise in the context of weak economic performance worldwide, except in the United States. MOM’s statement drew attention to this:

The moderation in total employment growth took place amidst sluggish global economic conditionsand slower growth of the Singapore economy, and tightened supply of foreign manpower.

— Ministry of Manpower, press statement, 28 January 2016

I will discuss “tightened supply of foreign manpower” a little further down.

Within the context of a sluggish global economy, I have a different reading of the situation from The Online Citizen. I even take issue with the thrust of MOM’s statement, and I shall next explain why.

The cost of politics

The statement bent over backwards to say that MOM has kept unemployment among residents low and stable:

Preliminary estimates showed that the overall seasonally adjusted unemployment rate dipped slightly from 2.0% in September 2015 to 1.9% in December 2015. Unemployment also eased among residents (3.0% to 2.9%) and citizens (3.1% to 3.0%). The annual average unemployment rate in 2015 was broadly unchanged since 2011 for overall (1.9%), residents (2.8%) and citizens (2.9%).

— Ministry of Manpower, press statement, 28 January 2016

Presumably, the ministry is expecting the audience to agree that this is a good thing, and that convincing people of this ministry’s achievement will pay off politically for the government of the day.

The mechanism for achieving this is hinted at in the quote a few paragraphs above. When the economy catches a cold or the job market goes soft, the ministry tightens up on work passes for foreigners. It is one thing to be more stringent about issuing new passes, it is another to cancel or refuse to renew passes of foreigners who have worked here for some time. I have heard many complaints about the latter.

I suppose the authorities hope that the company will then fill that enforced vacancy with a Singaporean, thus keeping down the local unemployment rate. Or should a company be mulling over retrenchment in the face of adverse sales, it would not need to retrench the local when the foreign employee is taken off its payroll through MOM fiat.

Superficially, this may sound like a smart political move — an unemployed voter is an unhappy one — but I have long been concerned about its short-sightedness.

Consider this scenario: there are economic headwinds and companies need to downsize. They would want to let some employees go, and keep those who are valuable for their productivity, their skills for helping make whatever strategic changes are required, or for making the most of the next upturn. In other words, companies would want to choose very carefully who stays and who goes.

The trouble is that companies may not have this flexibility when it is MOM that tells them who stays and who goes. Perhaps the ones most valuable to the company are some key foreigners with the skills to re-engineer the business, yet MOM is adamant about reducing the number of Employment Pass holders.

“Hire equally skilled Singaporeans,” some may say. It’s not so simple again. As many employers will tell you, in many areas, Singaporeans with similar skills and experience are not to be found, especially when one is looking for entrepreneurial drive and international exposure. And even if Singaporean equivalents can be found, think of the disruption within the company when the known and highly-regarded foreign employees have to depart, to be replaced with unknown newbies who need a year or more to find their feet in a new corporate culture. And all this while, less valuable employees are also being retrenched. Instability is not good for a company’s prospects.

Are we not crippling businesses here out of political expediency?

Over a few business cycles, it may be noticed by investors that politics can badly undercut their human resource planning. This will surely give investors pause.

Unbalanced priorities

The tone and emphases in MOM’s statement about the latest employment situation show how we unfortunately pander to this mindset, where holding down the local unemployment rate is so valorised, we become reckless about volatility on the foreigner side.

Moreover, the statement that mean income grew 6.5% in nominal terms and 7.0% in inflation-adjusted terms came out in a self-congratulatory way. As the global economy moves into an unsettled period, it would have been smarter to couch such data in more worried language: We’re pricing ourselves out.

Times like these, we should be careful what we wish for. Our best interests right now may be better served by a higher local unemployment rate, softer wages and more stability for foreigner employment.

——–

The technical stuff

You don’t need to read the rest, where I discuss some issues that surfaced when I looked at some statistics. It can get rather technical.

First of all, I couldn’t find the raw data to support the ‘100’ number, but I’m not surprised over that since the Ministry’s press statement refers to year-end numbers as estimates. This is understandable since now is only January 2016.

What I could find were numbers relating to June 2015, compared to June 2014. Here’s a summary of the various numbers I could extract from the Department of Statistics and the Ministry of Manpower’s website.

Line 4 shows an increase in the resident working-age population by about 38,000 between mid-2014 and mid-2015. This figure was used in the discussion above.

I could not replicate MOM’s figures for Labour Force Participation Rate, using MOM’s own definition. Using the raw data that the ministry provided, the ratios work out to about a one-percentage point difference from their calculation. Why this is so is unclear, but it is consistent with my experience with government statistics — they don’t fit together nicely. Now, there may be good reasons why MOM’s figures are slightly different than those obtained by a simple application of their own formula, but — and it’s consistent with my experience again — the opacity of process (i.e. unable to see how they arrived at their calculation), the lack of sufficient depth of raw data, make it impossible to fathom. One is supposed to take their figures on trust.

Another trouble with anything to do with ‘labour force’ statistics in Singapore goes deeper than that. ‘Labour force’ is a term that encompasses those in work and those wanting to be in work. In Singapore, we have no good data on who wants to be in work. Unlike other countries with a reasonable dole, out-of-job (unemployed) Singaporeans have no reason to register with the government. The ministry’s approach is to make an estimate based on limited-sample surveys, a method which I have always found rather unconvincing.

Since there are grounds for skepticism regarding the labour force figures, I always take our unemployment rate figures — 2.9% among residents in 2015, it said — with a pinch of salt. These fancy figures with decimal points don’t have the kind of accuracy they appear to have.

If the ‘labour force’ figure and the Unemployment Rate (derived from the former) are unreliable, our next best thing is to look at the Employment to Population Ratio. This is shown on line 9 of the table above. As at June 2015, it looked like it had improved over mid-year 2014. But since the second half of 2015 saw a loss of local employment, the true figure for end-2015 would indicate a worse Employment to Population Ratio than 2014.